Stock picking: the zero sum game

“Don’t Blink! The Hazards of Confidence” by Daniel Kahneman. This article appeared in The New York Times Magazine over a month ago and serves beautifully to make the point that the results of stock picking can be likened to “a dice rolling contest, not a game of skill.”

The article is adapted from Professor Kahneman’s latest book, “Thinking, Fast and Slow” and is an examination of the illusion of skill. Professor Kahneman was given the opportunity to examine a spreadsheet summarising the investment outcomes of 25 wealth advisers over 8 consecutive years. As he compared the first year with the consecutive years in turn to yield 28 correlations, he found little year to year consistency.

He also found that the average of the 28 correlations was .01 or zero. The outcomes were entirely down to chance not skill or judgement.